The Indian IT sector is currently navigating a significant structural reset as the rapid rise of Artificial Intelligence (AI) challenges long-standing business models. Market sentiment has been volatile, reflected in a sharp correction of the Nifty IT index, which has declined approximately 15% over the past month and nearly 30% from its recent peak. This sell-off, often described as an "AI scare," resulted in a combined market value loss of 56 billion USD across the sector earlier this February. Brokerage firms Nomura and UBS suggest that while the transition is painful, the market may be overreacting to the immediate threats. Nomura characterizes the current downturn as a "front-loading of pain," where investors are pricing in the decline of legacy service models before the benefits of new AI-driven revenue streams are fully realized. The industry is seeing a fundamental shift in how services are priced and delivered. Traditional time-and-material billing is under pressure from automated efficiency, leading to a rise in outcome-based contracts and risk-sharing models. To defend their long-term value, companies are increasingly moving toward non-linear growth, focusing on proprietary platforms and AI-integrated intellectual property. Key market indicators as of mid-February 2026: The Nifty IT index recently hovered around the 32,738 level, showing signs of stabilization after a two-week rout. Tata Consultancy Services (TCS) saw its market capitalization dip below the 10 lakh crore INR mark, trading near 2,755 INR. Despite the pressure, TCS reported 17.3% quarterly growth in AI services, reaching an annualized revenue run rate of 1.8 billion USD. Infosys is trading at approximately 1,365 INR, with a forward revenue guidance of 0% to 3% for the fiscal year. The company is currently managing over 2,500 Generative AI projects. Wipro and HCL Technologies have faced similar pressures, with Wipro trading around 213 INR and HCL Tech near 1,461 INR. Valuations for these heavyweights are now reaching attractive levels, trading at a 12% to 39% discount compared to their five-year averages. High free cash flows and steady dividend yields, currently ranging between 4% and 5%, are expected to provide a firm floor for stock prices. Operational focus has shifted toward workforce transformation. Major players have already begun upskilling at scale; TCS alone has trained over 350,000 employees in AI capabilities. Analysts believe that firms successfully bridging the "AI adoption gap" for global clients will be the primary beneficiaries of the next growth cycle. While traditional application maintenance—which accounts for nearly one-third of industry revenue—faces a potential 10% to 12% dent over the next few years, the emergence of sovereign AI infrastructure and large-scale data center investments in India offers a new frontier. Government initiatives and partnerships, such as the recent collaboration between TCS and AMD on AI infrastructure, highlight a pivot toward high-capacity hardware and sovereign cloud solutions.